Obama orders cuts in federal building costs, could affect thousands of leases

It soon could be lights out at thousands of government buildings across the country with President Obama scheduled to sign a memo Thursday ordering federal agencies to cut $8 billion worth of building costs by the end of the 2012 fiscal year.

The new orders could result in thousands of renegotiated or canceled leases and the divestment of government-owned office towers, courthouses, overseas embassies, storage warehouses and shacks along the Appalachian Trail. The ongoing closures and consolidations tied to the Defense Department's Base Closure and Realignment Commission would account for $5 billion of the savings, while the rest would come primarily from the departments of Energy, Homeland Security and Transportation, officials said.

The federal government is the nation's largest landowner, owning about 1.2 million buildings and other structures with a total annual operating and maintenance budget of $19 billion, according to the Office of Management and Budget. But an inventory process started during the George W. Bush administration has identified about 14,000 vacant structures and about 55,000 others that are underused.

"Both taxpayer dollars and energy resources are being wasted to maintain these excess assets," Obama states in the memo. "In addition, many of the properties that we do need to carry out the government's work are not operated efficiently, resulting in wasted funds and greenhouse gas pollution."

To that end, federal property managers have until September to identify excess or underused locations. The agencies will work with OMB and the General Services Administration to determine if property should be transferred to other agencies in need of space; donated to colleges, parks and hospitals; or sold to private owners. Agencies also must find ways to cut building and energy costs for remaining properties and consolidate the government's 1,100 data centers, facilities that contribute to the government's cost and environmental footprint.

"This pace of announcing new initiatives and new cost savings results will continue to be quite significant across the next several weeks and months," OMB Deputy Director Jeffrey Zients said in an interview on Wednesday.

GSA Administrator Martha Johnson said the new orders, along with new technologies and increased use of telework options, may one day result in even less need for government office space.

"Why do you bring everybody together into a workplace all the time? It's almost counterintuitive now," Johnson said Wednesday.

Declining demand would mean losses for private property owners with government leases. But Joe Brennan, managing director at the brokerage firm Jones Lang LaSalle, said that the long-term prospects for the government's landlords are good. "Will government actually shrink? I don't know that we see that; that's not what the government just tends to do," he said. "But could it be more nimble and efficient in regards to real estate? Yeah, I think there's a good chance of that." Selling excess properties could trigger a resurgence in commercial real estate sales, said Spencer Levy, senior managing director for the brokerage firm CB Richard Ellis. "What the market needs now more than anything is sales," Levy said, adding that sale prices for government properties would vary widely.

"Certainly some of the better assets in the major markets -- they are going to be trading very well," Levy said. "But when you get into the secondary markets is where you get into a very challenging situation."